I recently became familiar with the inspirational story of Walter Raineri. Walter Raineri is a former CPA who over a five-month period in 2005 lost 95 percent of his vision due to Retinitis Pigmentosa (http://www.blindness.org/retinitis-pigmentosa). Mr. Raineri had a choice when faced with the problem which he conveyed the following way in an interview, “I had to decide to stop trying to be a poorly functioning sighted person and start being a highly functioning blind person.” The path forward selected, Water Raineri with effort, perseverance, and skill became a x-country skier and sailor performing at the highest levels with the assistance of experienced, knowledgeable mentors despite being significantly visually impaired. He is an inspiration to all of us on what is possible.
As a mergers & acquisitions professional, I have the honor & pleasure to work for a demographic of high achieving individuals possessing knowledge, experience, and strong business acumen. It is common for me to learn business & life lessons from them while working collaboratively on a business purchase & sale. It is also common for the process related to the purchase & sale of a business to be a new or unfamiliar experience for even the most successful entrepreneurs. Wise individuals engage the services of knowledgeable, experienced, and skilled professionals when they are faced with a unique situation or problem.
The sale of a privately held company is a unique situation for an entrepreneur as it requires addressing a series of unfamiliar problems.
The first problem faced by a business owner wanting to sell their business is answering the question, what is my business worth? Business valuation is a sophisticated process requiring investment valuation & market condition knowledge. Investment valuation knowledge is an important component of business valuation because the knowledge will allow the party performing the valuation to select the appropriate EBITDA multiplier for the company based on its industry & geographic location. Market condition knowledge is an important component because market conditions impact all purchases & sales. It is my strong recommendation that a business owner seeking a value for their business employ an expert with experience & knowledge relevant to the subject industry and geographic location. IBA has successfully represented business owners in Massachusetts, North Carolina, California, & Arizona in the sale of their companies, but we will be the first to acknowledge that our knowledge related to business sales & market conditions in the Pacific Northwest is superior to other states based on our over 4000 transactions over a 42-year period in the Northwest corner of the United States.
A value established, the next problem faced by a business owner wanting to sell their business is how do I market my business to buyers. The marketing of a privately held company for sale is a difficult task. On one hand, it is in the best interest of the seller to have the maximum number of parties know the company is for sale to create a dynamic, competitive marketplace. On the other hand, it is in the best interest of the seller to only have the information the business is for sale distributed to parties that have the ability & desire to negotiate in “good faith”. Balancing these divergent interests requires knowledge, experience, and an understanding of how to best utilize non-disclosure agreements. It is my strong recommendation that an entrepreneur clearly understand the marketing program & procedures employed by a business broker prior to engaging their services. Marketing a business is very different from selling residential real estate where a business is advertised in a multiple listing service and a sign put in front of the house.
A potential buyer identified, the next problem faced by a business owner wanting to sell their business is how much information should I share with potential buyers and when should confidential information like tax returns, customer lists, and “trade secrets” be disclosed. The proper timing of the dissemination of information can vary greatly depending on the type of business, demographics of the buyer, and size of the transaction. It is prudent to have an experienced business broker facilitate the disclosure of information for presentation of information at an inappropriate time can negatively impact the negotiation and/or business if a transaction is not completed.
A “willing & able” buyer identified, the next problem faced by a business owner is how to facilitate negotiations and which legal documentation should be used at what stage of negotiations to mitigate transaction costs and maximize the likelihood of a successful outcome. It is common for a business owner’s attorney to collaborate with their mergers & acquisitions professional at this stage of the transaction. An allocation of negotiating responsibility between the professionals should be discussed between the business owner, attorney, and business sale intermediary. In IBA facilitated transactions it is common for business terms to be allocated to IBA and liability issues to be allocated to legal counsel. A comprehensive understanding of market conditions & business valuation is critical at this stage of financial negotiations to achieve the best possible financial outcome and should be entrusted to a party with that knowledge. Many business sales fail at this stage when a separate party than the one negotiating the sale of the business performed the business valuation due to an inability to justify the value conveyed. I caution business owners from using a business brokerage firm that does not have the ability to value their company “in house”.
Agreement reached on the legal documents, problem solving through a variety of issues ranging from due diligence to tax allocation and financing to facility lease assignments and/or negotiations can be presented to the parties. Knowledge, experience, and skill addressing the problems enhance the probability of navigating through these issues successfully as in the previously mentioned situations.
Selling or buying a business is likely the most sophisticated transaction an individual will participate in during their life. It is a sale process that will require problem solving multiple times where knowledge, experience, and business acumen enhance the possibility of achieving a “win-win” outcome that satisfies both parties. Walter Raineri skied & sailed after losing 95% of this vision because he worked with professionals that advised him from a position of experience & knowledge. If a sale of a privately held company is desired, it is prudent to engage an experienced & knowledgeable guide to help problem solve through the myriad of issues necessary to get the transaction to closing.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.